Vice President, Professor Yemi Osinbajo has explained reasons for the high exchange rate in Nigeria. Osinbajo who was a guest at an event in Ikeja, Lagos captioned The GRILL with Professor Yemi Osinbajo answered wide variety of questions giving in-depth explanations to plans and projects of the Federal Government.
Explaining the high rate of the foreign exchange in recent years, Osinbajo said, “Let me explain why the exchange rate is where it is today. The exchange rate is usually simply a matter of availability of the foreign exchange. Nigeria does not have a convertible currency so we rely entirely on the US Dollar in particular.
“So if you have more Dollar, the exchange rate is favourable. The more Dollar you have, the more favourable the exchange rate,” he explained.
Going down memory lane, Osinbajo explained what happened to the Nigerian economy and precisely the exchange rate before the Buhari-led government assumed power in 2015. “Let me explain what happened between 2010 and 2014. In 2010/2014 Nigeria earned the highest amount of money from oil and gas ever,” he said, adding that, “$223bn was realised and that was the time we had our highest exchange rate because that is the highest point, there was a lot of Dollars ever.
“The reason we had such high amount of Dollars where so much was earned was because the barrel of oil was selling for between $100 and $114, so over that four year period, we had the highest money so by 2015 the price of crude oil fell to $28. There was a very sharp drop in oil earning and foreign exchange so like I said it is the foreign exchange that determines the rate, so if you don’t have enough Dollar what will simply happen is that you will have high exchange rate,” he explained.
Explaining further, he said, “Between 2015 and December 2017, the entire earning from foreign exchange from oil was $94bn compared that to $383bn, I am not talking of importation of capital, just oil earning. It’s a matter of if you have enough foreign exchange then the exchange rate would be much lower.”
On the strategy the Buhari-led government adopted to arrest the soaring exchange rate, Osinbajo told the audience that the Federal Government had to cut down on importation.
“The first strategy is that we should ensure that we import less than we used to import. As of 2015, we were importing everything. We were importing $5m of rice every single day. We were importing almost $3bn of wheat in a year, we were importing toothpick, we were importing virtually everything.
The reason importation makes our foreign exchange worse is that it depletes the foreign reserve and foreign exchange and once your foreign exchange is becoming lower you don’t have enough and your exchange rate begins to go up as everybody begins to look for more dollars to import again,” he said.
The Vice President also explained the cut in rice importation which according to him had earlier cost the country $5m daily.
“The first thing to do was to determine we were going to reduce importation of rice. So we started aggressive program in rice production. We gave out 760,000 loans to farmers and several states where rice is being produced we began to produce rice.
“As of the end of last year we were producing more of rice we need as a country and importation of rice dropped to $2 percent of what we used to import. The result is that we have saved N26bn that should have been used to import rice.
“We have been able to save considerably once we can save, we would have enough in foreign reserve and the exchange rate begins to drop,” he said.
Another strategy of the government to reduce the rate of foreign exchange Osinbajo mentioned was the importation of capital investment which he took his time to explain. “Another way our foreign exchange could drop is the importation of capital investment or what is called portfolio investment or direct investment.
“Those who were investing were also bringing in their Dollars or foreign exchange, one of the most important thing is that when we reduce importation our foreign exchange would begin to improve and our requirement for foreign exchange obviously would continue to reduce and our foreign exchange would begin to fall. What we must have in mind is to have enough produced locally.
“Even today, on our Armour Personnel Carrier (APC) there is a directive from the President that we must buy from what we produce locally. Today, APC is supplied by Innoson Motors, a Nigerian company, and Proforce, another Nigerian company is supplying APC. We have we have in Aba several companies supplying army boots, army uniforms and other items.
“If the government focuses the way we are focusing now, ensuring we produce locally, many of the things we use would be produced. Our country would also produce many of the jobs that are necessary and we would also considerably reduce foreign exchange and we won’t import as much as we do. So the strategy of the country is very straight toward that; producing locally and giving credit facilities to those producing.”
